What’s Included In Purchase And Sale Agreements?
While every contract differs, most PSAs include some or all of the following components.
Property Information
This is a description of the asset for sale. In the case of a home, the property information would include a physical address, the size of the property, etc. This information should be clearly spelled out. There should be no ambiguities.
Purchase Price And Conditions
One major purpose of a PSA is to establish the agreed sales price between the buyer and the seller in writing. In many cases, the sales price may change or be renegotiated between signing the PSA and closing on the home.
These negotiations can occur when there are problems that may cause a sale to fall through. For instance, if a home inspection comes back with a significant issue or the appraisal comes back low, the buyer may try to negotiate a lower house price with the seller.
Earnest Money Deposit
Earnest money, also known as a good faith deposit, is a deposit a buyer puts down to support the seriousness of the PSA. The PSA outlines many details of the deposit, including how much to deposit, the deposit deadline and details on who’ll manage the earnest money, which is usually a third-party escrow agent or title company.
Closing Date
The PSA states the planned closing date, which sets the sale process in motion. A home inspection, a title search, an appraisal and mortgage underwriting typically happen before the closing date. When you close on a house, all these components come together in one meeting at a real estate attorney or title company’s office.
Title Information
When buying a property, it’s generally recommended to check the status of the home’s title and purchase title insurance in case of potential problems. The PSA contains info on the title company you’re using, including their name and address. The title company usually holds the escrow money, and in some states, this is where you go to close on the property.
Your PSA also contains information on how the house title will be transferred, including who pays for the title policy, how the title is insured and how the title is conveyed.
Escrow Company
The PSA also gives information regarding the escrow company, including who the escrow agent is, who pays escrow agent fees and when delivery of the loan proceeds to the escrow agent must take place. Unless otherwise noted, the escrow agent and the title insurance company are usually the same.
Contingencies
Contingencies allow buyers to legally back out of a real estate transaction without losing their earnest money deposit. Common contingencies include an appraisal contingency and a home inspection contingency.
Addendums And Riders
These are documents added to the standard PSA. Addendums and riders contain requests from the buyer to the seller to keep the sale on track. Some examples include a septic inspection addendum if the property has a septic tank and closing date extensions in case the date needs to change.
Some addendums are optional, and others are required by law. Work with your agent or real estate attorney to determine which you must include.
